<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations 

The financial condition and operating results of CILCORP Inc. (the Company) 
primarily reflect the operations of Central Illinois Light Company (CILCO), 
the Company's principal business subsidiary.  The Company's other core 
business subsidiary is Environmental Science & Engineering, Inc. (ESE).  The 
Other Businesses segment includes the operations of the holding company itself 
(Holding Company), its investment subsidiary, CILCORP Investment Management 
Inc. (CIM) and  its venture capital subsidiary, CILCORP Ventures Inc. (CVI).

CILCO is a regulated public utility engaged in the generation, transmission 
and distribution of electric energy and the purchase, transportation and 
distribution of natural gas in Central Illinois.  

ESE is an environmental consulting and engineering firm with additional 
capabilities in laboratory analysis and equipment manufacturing.  ESE, through 
its subsidiaries, also acquires environmentally impaired property for 
remediation and resale.

                                   OVERVIEW

Contributions to the Company's earnings per share for the last three calendar 
years are shown below:
<TABLE>
<CAPTION>
                              1995           1994         1993          
<S>                          <C>            <C>           <C>
CILCO                        $2.97          $2.26         $2.60
ESE                            .01            .14          (.17)
Other Businesses              (.05)           .10           .17
                              -----          -----         -----
  Earnings per share         $2.93          $2.50         $2.60
                             =====           =====         =====

</TABLE>
CILCO's earnings increased by 31% in 1995.  Electric gross margin increased
by 6% due primarily to warmer summer weather.  Gas gross margin increased by
22% in 1995 due to a 6.7% gas base rate increase effective in December 1994
(see Note 9) and increased sales due to colder weather during the heating
season.  In addition, CILCO sold two parcels of land in 1995 at the former R. S.
Wallace electric generating plant site (see CILCO Other Income and Deductions)
which generated an after-tax gain of $2.1 million, or $.16 per share. 
Offsetting these increases was a one-time $7.8 million after-tax charge related
to CILCO's early retirement programs (see CILCO Early Retirement Programs).
This item reduced 1995 earnings by $.59 per share.  Earnings for 1994 include
a $4.5 million after-tax charge against income to reflect the Illinois
Commerce Commission's (ICC) disallowance of a portion of CILCO's 
investment in renewing its gas system in Springfield, Illinois. In 1994 CILCO
also paid $1 million, consisting of a fine and expenses, related to a U. S.
Department of Justice and U. S. Department of Transportation review of
CILCO's gas operations (see Note 9).  These one-time charges reduced 1994
earnings by $.42 per share.

ESE's earnings declined in 1995 due primarily to delays in government spending
and changes in the regulatory climate at both the federal and state levels. 
Other Businesses' results declined in 1995 because the prior year's results
included a one-time $1.8 million gain on the sale of stock and warrants held by
a CILCORP subsidiary as a result of a leveraged lease restructuring.  Also,
revenue from CIM's lease portfolio was lower in 1995 compared to 1994 due to the
normal aging of the leases.  Results for 1993 reflect the favorable settlement
of a federal tax dispute related to CIM's lease portfolio.

The following table summarizes each business segment's contribution to net
income (see Results of Operations for further discussion).
<TABLE>
<CAPTION>
                                          1995         1994        1993   
<S>                                     <C>          <C>         <C> 
                                                (in thousands)
Electric operating income               $48,769      $49,623     $49,129
Gas operating income                     14,779        8,884      11,058
                                        -------     -------      -------
Total utility operating income           63,548      58,507       60,187
Utility interest expense and other      (24,743)    (24,686)     (26,828)
Disallowed plant cost of                                      
   regulated subsidiary, net of tax         --       (4,541)        --
Environmental and engineering                                 
   services net income (loss)               113       1,824       (2,266)
Other businesses net income (loss)         (336)      1,482        2,490
                                         -------    -------        -------
   Net income                           $38,582     $32,586      $33,583
                                         =======     =======      =======

</TABLE>
Return on average common equity was 11% in 1995 compared to 9.5% in 1994 and 
10% in 1993.  The ratio of common equity to total capitalization, including 
short-term debt, was 43% in 1995 and 44% in 1994 and 1993.  The fixed charge 
coverage ratio increased to 2.7 in 1995 compared to 2.6 in 1994 and 2.4 in 
1993.

Inflation may have a significant impact on the Company's future operations and 
its ability to contain costs. To help protect CILCO from the effects of 
inflation, substantially all electric and gas sales rates include a fuel 
adjustment clause or a purchased gas adjustment clause to provide for changes 
in electric fuel costs, excluding coal transportation, and changes in the cost 
of natural gas.  Over the past five years, the annual rate of inflation, as 
measured by the Consumer Price Index, has ranged from 2.6% to 4.3%.

                        CAPITAL RESOURCES AND LIQUIDITY

The Company believes that internal and external sources of capital which are, 
or are expected to be, available to the Holding Company and its subsidiaries 
will be adequate during the coming year to fund the Company's capital 
expenditures program, pay interest and dividends, meet working capital needs 
and retire or refinance debt as it matures. The Company@s long-term ability to 
declare and pay dividends depends upon the ability of its subsidiaries to 
generate cash from their operations, future business conditions, earnings, and 
the financial condition of the Company.

THE COMPANY

The Company issued 299,850 and 64,255 shares of common stock during 1995 and 
1994, respectively, through the CILCO Employees@ Savings Plan (ESP) and the 
CILCORP Inc. Automatic Reinvestment and Stock Purchase Plan (DRIP).  These 
shares were issued at average prices of $37.83 and $36.18 for 1995 and 1994, 
respectively.  Depending on market conditions, the Company may issue 
additional shares of common stock through the ESP, the DRIP or through a 
conventional stock offering.  The proceeds from newly-issued stock have been, 
and will continue to be, used to retire CILCORP short-term debt, to meet 
working capital and capital expenditure requirements at CILCO and for other 
corporate purposes.  Future proceeds may also fund the operations and 
investments of QST Enterprises Inc. and its affiliated subsidiaries (see 
Electric Competition).

CILCORP is currently authorized by its Board of Directors to borrow up to $50 
million on a short-term basis.  The Company had $50 million and $40 million of 
committed bank lines at the end of 1995 and 1994, respectively.  The Company 
also had $5 million of discretionary bank lines at the end of 1995 and 1994.  
At December 31, 1995, $22.5  million of the lines were used, compared to $6 
million at December 31, 1994.    

At the end of 1995, the Company had $45 million of medium-term notes 
outstanding, compared to $48 million outstanding at the end of 1994.  The 
Company may issue up to $75 million under its medium-term note program.  The 
Company may issue additional notes in the future under this program to retire 
maturing debt and to provide funds for other corporate purposes.

CILCO

In 1995, CILCO spent $69.5 million for capital additions and improvements.  
These expenditures consisted primarily of replacements and improvements to the 
existing electric and gas systems, including $3.3 million for the steam 
boilers and related auxiliary equipment of a cogeneration plant at Midwest 
Grain Products, Inc. (MWG), one of CILCO's major gas, electric and steam 
customers.  The total expenditures for the MWG project were $19.1 million 
incurred in 1994 and 1995.  The plant, which is owned by CILCO, began 
providing steam to MWG's Pekin, Illinois, facility in December 1994, and began 
generating electricity for distribution to CILCO's customers in June 1995.  

CILCO recognizes that increased competition in the utility industry requires 
different systems and processes for providing quality customer service.  To 
address this need, CILCO replaced its Customer Information System (CIS) in 
September 1995, at a cost of approximately $12.7 million, of which $4.6 
million was spent in 1995.  Utility capital projects were financed during 1995 
with funds from operating activities, $20 million of medium-term notes, and 
issuance of short-term debt.  CILCO's net cash flow from operations in 1995 
was $80.9 million.  CILCO paid $20.1 million in cash dividends to CILCORP 
during 1995.  

CILCO's estimated capital expenditures for 1996 and 1997 are $49.3 million and 
$49.7 million, respectively.  The 1996 estimate includes $8.4 million for 
electric energy supply and transmission projects, $1.8 million for gas supply 
and transmission projects, and $37 million for electric and gas distribution 
system improvements. Capital expenditures for 1998-2000 are currently 
estimated to be $148.9 million.  Actual capital expenditures may vary from 
these estimates because of a number of factors, including changes in costs of 
labor, equipment, capital, environmental regulations, and load growth 
estimates.

CILCO's short-term debt increased to $24.6 million at December 31, 1995, from 
$23.4 million at December 31, 1994.  CILCO expects to issue commercial paper 
periodically during 1996, and is currently authorized by its Board of 
Directors to issue up to $66 million of short-term debt.  At December 31, 
1995, committed bank lines of credit totaled $30 million, all of which were 
unused.  CILCO expects these bank lines will remain unused through 1996.

In May 1995, CILCO issued $20 million of secured medium-term notes to finance 
capital expenditures and to retire a portion of CILCO's short-term debt.  In 
December 1995, CILCO issued $16 million of secured  medium-term notes which
were used to retire $16 million of first mortgage bonds due in February 1996
(see Note 7).  CILCO plans to finance its 1996 and 1997 capital expenditures
with funds provided by operations.

ESE

ESE spent $4.5 million for capital additions and improvements in 1995.  In 
addition, through its wholly-owned subsidiary, Savannah Resources, Inc. 
(Savannah), ESE spent $2.4 million in 1995 to acquire land that will be 
remediated and sold in 1996.  In September 1995, ESE sold property which was 
acquired in 1994 for remediation, realizing a pre-tax gain of $1.2 million.  
ESE expects to spend $8 million in 1996 to acquire land for remediation and 
resale, and $1 million for other purposes.  

ESE's cash flow from operations totaled $7.8 million in 1995.  Cash flow is 
supplemented by a $15 million revolving line of credit with the Holding 
Company.  The revolving line of credit expires on May 2, 1996, at which time 
it may be renewed or replaced with a line of credit from a non-affiliated 
lender.  ESE has also issued a $20 million term note to the Holding Company 
which is due on May 2, 1998.  At December 31, 1995, ESE had $2.6 million 
outstanding on the revolving line of credit, compared to $5.6 million 
outstanding at December 31, 1994.  ESE also has a $10 million bank line of 
credit to collateralize performance bonds issued in connection with ESE 
projects, of which $4.4 million was committed as of December 31, 1995.  ESE 
anticipates that the funds generated by operations and the amounts available 
under the revolving credit facility will be sufficient to meet its anticipated 
working capital requirements.

CIM

CIM had outstanding debt of $26 million and $27 million at the end of 1995 and 
1994, respectively.  The debt at the end of 1995 consisted of $23 million 
borrowed from the Holding Company and $3 million borrowed from external 
sources.  The debt at the end of 1994 consisted of $6 million borrowed from 
the Holding Company and $21 million borrowed from external sources.  In 
December 1995, CIM purchased a $1 million limited partnership interest in an 
affordable housing portfolio.  CIM expects to finance new investments and 
working capital needs during 1996 with a combination of funds generated 
internally and periodic short-term borrowings from the Holding Company.

                               ELECTRIC COMPETITION

The National Energy Policy Act of 1992 (NEPA) encourages competition but 
specifically bans federally-mandated transmission of power to retail 
customers.  However, several state legislatures and public utility regulatory 
commissions are investigating or adopting pilot programs to initiate 
competition at the retail level.  In addition, incentive regulation is being 
implemented or considered by legislatures and public utility commissions in 
over twenty states.  Utilities may benefit or lose depending upon their 
ability to reduce costs and improve efficiency.

In July 1995, Illinois enacted a law which offers gas and electric public 
utilities an opportunity to develop alternative regulation and
performance-based ratemaking programs.  These programs will be subject to
standards established by the ICC and restricted to the utility's service
territory.  They may begin in 1996 and must end by June 30, 2000.  A report
on the results of the programs will be delivered to the Illinois legislature
by December 31, 2000.  Programs developed under the law may become effective
January 1, 1996, with the ICC's approval.

In 1995, legislation was introduced in Illinois to provide, among other 
things, an option for electric utilities to lease their generating plants to a 
subsidiary or other affiliated company, to provide for full competition for 
power requirements of larger electric customers within five years, to provide 
experimental retail competition for smaller electric customers, to create a 
new class or status of "competitive" customers that are permitted to negotiate 
service contracts with their electric utility suppliers without regulatory 
oversight, and to provide for alternative regulation. This proposal allows 
recovery of costs incurred by utilities, but @stranded@ as a result of retail 
competition.  The legislation was not adopted by the 1995 session of the 
legislature, which instead created a Joint Committee on Electric Utility 
Regulatory Reform (Committee) to study deregulation and increased competition 
in the electric industry.  The Committee will review reports and studies from 
a diverse group of organizations.  A technical advisory group comprised of 
representatives from the ICC and various companies, including CILCO, will 
conduct research and offer testimony. The Committee will include the 
previously described legislative proposal in its deliberations and is expected 
to recommend legislation to the Illinois legislature in late 1996.  During 
1996, CILCO plans to develop and offer its own proposal.

With the proposed changes in the regulatory environment and the potential for 
increased competition in the electric utility industry at both the wholesale 
and retail levels, CILCO anticipates significant changes in the industry in 
the years to come.  Management cannot predict the ultimate effect of these 
changes, but believes that they will result in customers having the 
opportunity to select the electric supplier of their choice and that low 
operating costs and improved efficiency will be key competitive factors for 
electric utilities.

In August 1995, CILCORP took steps to position itself and its subsidiaries to 
deal more effectively with industry change.  The Company developed a point of 
view about the future utility and energy services industry which has led it to 
champion customer choice and to develop a growth strategy.  In addition, 
CILCORP identified the need to gain additional customer insight through market 
research and other means, to obtain new core competencies, to develop new 
product and service offerings, to make operational changes to become more 
competitive, to pursue legislative and regulatory strategies to further 
competition, and to identify and strategically allocate Company resources.

To lead the movement toward increased customer choice, in August 1995 CILCO 
requested regulatory approval from the ICC to establish two electric pilot 
retail competition programs known as Power Quest. The programs, as proposed, 
would offer greater choice to customers and provide the opportunity for CILCO 
and its customers to participate in a competitive business environment.  CILCO 
expects these programs to be approved by the ICC during the first quarter of 
1996.

One program will permit eight of CILCO's industrial customers that had peak 
loads of 10 megawatts or more during the twelve months ended July 31, 1995, to 
secure part or all of their electric power requirements from suppliers other 
than CILCO, subject to the limitation that at no time shall total purchases by 
participants in the program exceed 50 megawatts (approximately 10% of CILCO's 
industrial load).  The program@s two-year term may be extended with the 
approval of the ICC.

In the other program, the first of its kind proposed in the nation, CILCO will 
designate one or more areas within its service territory as "Open Access 
Sites" for up to five years.  During that period, customers located within an 
Open Access Site-whether residential, commercial or industrial-will be 
eligible to purchase some or all of their electric power requirements from 
suppliers other than CILCO.  The five-year program period may be extended with 
ICC approval.

Under Power Quest, CILCO will deliver, for an approved fee, other suppliers' 
power from a designated receipt point on CILCO's system to the customer's 
location, as well as provide other associated services. CILCO will not impose 
any exit fees, entrance fees, or stranded cost recovery upon any customers in 
connection with Power Quest.

CILCO anticipates that, during Power Quest, it is likely that there will be some
reduction in electric profit margin because some eligible customers may
purchase some or all of their power requirements from other suppliers.  The
amount of any such reduction depends largely upon the extent of customer
participation in Power Quest.  CILCO expects, but cannot assure, that some
of the reduced profit margin will be offset by increased sales to customers
and utilities outside its service territory.  The estimated annual net
income reduction associated with the pilot program for industrial customers
is not likely to exceed $2.5 million.  The amount of any such loss associated
with the other pilot program cannot be estimated at this time, but it is not
expected to be material.  Management cannot currently predict the impact on
its financial condition which may result from proposed changes in the
regulatory environment or from increased competition in the electric utility
industry.

In December 1995, CILCORP formed a new wholly-owned subsidiary - QST
Enterprises Inc. (QST) - to facilitate CILCORP's expansion into non-regulated
energy and related services businesses.  QST will initially have two
subsidiaries:  QST Energy Inc. and QST Energy Trading Inc.  The staff of QST
will initially consist of 14 employees transferred from CILCO and CILCORP.

Also in December 1995, QST Energy Trading Inc. filed a proposal with the
Federal Energy Regulatory Commission (FERC) to operate as a wholesale marketer
and broker of electric power, transmission services, and fuel supplies.
QST Energy Inc. will sell power and provide related metering and billing
services to retail customers.  These activities will take place through
unregulated service opportunities as they become available, including CILCO's
Power Quest retail competition program.

In an effort to obtain a competitive advantage, various mergers and business 
combinations are occurring in the utility industry.  There have been several 
announced utility industry mergers or business combinations which will have an 
impact on the region in which CILCO currently operates.  Mergers and 
combinations have also been announced in other areas of the country. CILCO 
management will monitor this activity and continue to position itself for 
competition by keeping its costs and prices low, maintaining good customer 
relations and developing the flexibility to respond directly to individual 
customer requirements.

                        CILCO'S EARLY RETIREMENT PROGRAMS

As part of a continuing effort to better position itself for competition in the 
energy services industry (see Electric Competition), CILCO offered Voluntary 
Early Retirement Programs (programs) to eligible employees in July 1995.  The 
programs offered to the International Brotherhood of Electrical Workers (IBEW) 
and the International Brotherhood of Firemen and Oilers (IBF&O) are based upon 
agreements made between CILCO and its unions.  Another program was offered to 
all management and office and technical workers.  CILCO had 257 full-time 
employees who were eligible for these programs.   One hundred and sixty-six 
accepted the offer, with retirements effective January 1, 1996.  The programs 
resulted in an after-tax charge of approximately $7.8 million against fourth 
quarter 1995 earnings.  Management expects the programs to generate an annual 
after-tax cost reduction of approximately $3.4 million beginning in 1996.  

                             ENVIRONMENTAL MATTERS

CILCO's capital expenditures related to pollution control facilities are 
estimated to be $3.2 million and $5 million for 1996 and 1997, respectively.  
The acid rain provisions of the Clean Air Act Amendments of 1990 (Amendments) 
require additional sulfur dioxide (SO2) and nitrogen oxide (NOx) emission 
reductions at CILCO's generating facilities.  CILCO's facilities are exempt 
from Phase I of the Amendments due to previous emission reductions, but are 
subject to Phase II of the Amendments which require additional emission 
reductions by the year 2000.

CILCO's final compliance strategy will depend upon regulations issued under 
the Amendments; therefore, CILCO cannot currently determine definitive 
compliance costs and schedules.  CILCO will continue to monitor regulatory 
actions and develop compliance strategies to minimize any financial impact.  
Under current regulatory policies, CILCO can recover compliance costs 
associated with the Amendments and other environmental regulations through 
rates charged to customers.  CILCO's present strategy includes use of an 
existing SO2 scrubber and limited fuel switching to control SO2 emissions, and 
combustion control modifications to reduce NOx emissions.  CILCO's generating 
units will not require additional SO2 scrubbers.

In 1996 and 1997, CILCO expects to spend $4.8 million for boiler retrofits and 
emissions monitoring equipment related to the Amendments. CILCO spent $12.1 
million through 1995.  In 1993, the U. S. Environmental Protection Agency 
established SO2 emission allowance reserves for power plants in Phase II.  
Allowances are transferable to third parties at market prices.  CILCO 
continues to weigh the costs of allowances against alternative operating 
scenarios and may use the allowance market if allowances are the least cost 
option to meet future compliance goals.

Neither CILCORP, CILCO, nor any of their affiliates has been identified as a 
potentially responsible party under federal or state environmental laws 
governing waste storage or disposal.  

CILCO continues to investigate and/or monitor four former gas manufacturing 
plant sites (Sites A, B, C, and D) located within CILCO's present gas service 
territory.  The purpose of these studies is to determine if waste materials, 
principally coal tar, are present, whether such waste materials constitute an 
environmental or health risk and if CILCO is responsible for the remediation 
of any remaining waste materials at those sites.  CILCO previously operated 
plants at three of the four sites (Sites A, B, and C) and currently owns two 
(Sites A and B).  CILCO has remediated Site A, at a cost of $3.3 million.  In 
1994, CILCO investigated Site B to define the extent of waste materials at the  
site.  A risk assessment remedial alternatives study at Site B is underway, 
taking into consideration new clean-up options available under current 
Illinois law.  CILCO has paid approximately $397,000 to date to outside 
parties for investigating, testing and clean-up of Site B.  CILCO has not yet 
formulated a remediation plan for Site C.  Until more detailed site specific 
testing has been completed, CILCO cannot determine the ultimate extent or cost 
of any remediation of Site C.  CILCO has not yet determined the extent, if 
any, of its remediation responsibility for Site D.

CILCO spent approximately $251,000 for former gas manufacturing plant site 
monitoring, legal fees and feasibility studies in 1995.  A $4.2 million 
regulatory asset and a corresponding liability are recorded on the Balance 
Sheets (see Note 1) representing the minimum amount of future coal tar 
investigation and remediation costs CILCO expects to incur.  Coal tar 
remediation costs incurred through December 1995 have been deferred on the 
Balance Sheets, net of amounts recovered from customers.  

Through December 31, 1995, CILCO has recovered approximately $4.2 million in 
coal tar remediation costs from its customers through a gas rate rider approved 
by the ICC.  Since the spring of 1994, this gas rate rider has allowed recovery 
of these costs over five years without carrying charges.  In April 1995, the 
Illinois Supreme Court held that Illinois utilities are entitled to recover
100% of their prudently incurred coal tar remediation costs.  Based upon the
Supreme Court's decision, the ICC granted CILCO's request to implement revised
gas rate riders in November 1995 which will allow recovery of coal tar
remediation costs in the year they are incurred.  Under these circumstances,
management continues to believe that the cost of coal tar remediation will
not have a material adverse effect on CILCO's financial position or results
of operations.

                    GAS PIPELINE SUPPLIER TRANSITION COSTS

In 1992, the FERC issued Orders 636, 636A, and 636B (collectively Order 636). 
Order 636 substantially restructured the relationship between gas pipelines 
and distribution companies, such as CILCO, for the sale, transportation and 
storage of natural gas.  These services, which traditionally had been 
@bundled@ by interstate pipeline companies, are now individually arranged by 
CILCO.  CILCO believes it is well-positioned to ensure the continued 
acquisition of adequate and reliable gas supplies.

Order 636 also permitted pipeline suppliers to recover from gas distribution 
companies prudently incurred transition costs attributed to compliance with 
Order 636.  As of December 31, 1995, pipeline suppliers have billed CILCO, 
subject to refund, for approximately $2.2 million of transition costs, 
including interest.  These charges have been, or will be, recovered from 
CILCO@s customers through its purchased gas adjustment clause (PGA).  The PGA 
requires CILCO to adjust customer billings to reflect changes in the cost of 
natural gas.  Presently, CILCO cannot determine its actual allocation of 
suppliers' transition costs but believes that it could ultimately be billed an 
additional $1.6 million, excluding interest.  During 1994, the ICC affirmed 
the right of Illinois gas distribution companies to recover pipeline 
transition costs from their customers; therefore, management does not expect 
that Order 636 will materially impact CILCO's financial position or results of 
operations.

Under FERC Order 500, and subsequent Orders 528 and 528A, interstate gas 
pipelines may bill gas distribution utilities for take-or-pay and other 
charges related to the transition to a more competitive gas industry.  Through 
December 1995, gas pipelines have billed CILCO $23.1 million, including 
interest, for take-or-pay charges and certain costs related to one supplier@s 
liquefied natural gas project.  CILCO estimates that it could ultimately be 
directly billed a total of approximately $24.4 million, excluding interest, 
for these costs.  CILCO is allowed by the ICC to recover these charges via a 
factor incorporated into the PGA, and through December 31, 1995, has recovered 
$23 million, including interest, from its customers.  

CILCO has recorded a regulatory asset and corresponding liability of $3.9 
million on its Balance Sheets as of December 31, 1995, of which $2.3 million 
will be due in one year (see Note 1).  The remaining $1.6 million represents 
the minimum amount of the estimated range of such future pipeline direct 
billings which CILCO expects to receive related to take-or-pay and transition 
costs.

                           ACCOUNTING PRONOUNCEMENTS

No accounting pronouncements issued by the Financial Accounting Standards 
Board (FASB) in 1995 will have a material effect on the Company's financial 
position, results of operations or cash flows.

RESULTS OF OPERATIONS

CILCO ELECTRIC OPERATIONS

The following table summarizes electric operating revenue and expenses by 
component.
<TABLE>
<CAPTION>
Components of Electric Operating Income 1995       1994          1993
                                             (In thousands)
<S>                                 <C>           <C>          <C>
Revenue:                                                               

Electric retail                     $321,066      $304,903     $298,602
Sales for resale                       5,132         8,182        4,522
                                    --------      --------     --------
     Total revenue                   326,198       313,085      303,124
                                    --------      --------     --------
Cost of sales:                                                         
Cost of fuel                          94,235        97,184       92,112
Purchased power expense               12,353         9,433        8,754
Revenue taxes                         14,244        13,260       12,378
                                    --------      --------     --------
     Total cost of sales             120,832       119,877      113,244
                                    --------      --------     --------
        Gross margin                 205,366       193,208      189,880
                                    --------      --------     --------
Operating expenses:                                                    
Operation and maintenance                                              
 expenses                             89,113        75,806       76,287
Depreciation and amortization         40,665        39,130       38,337
Income taxes                          17,975        19,925       17,542
Other taxes                            8,844         8,724        8,585
                                    --------      --------     --------
     Total operating expenses        156,597       143,585      140,751
                                    --------      --------     --------
     Electric operating incoe       $ 48,769      $ 49,623     $ 49,129
                                    ========      ========     ========

</TABLE>
Electric gross margin increased 6% in 1995, primarily due to a 4% increase in 
retail kilowatt hour (kwh) sales.  The increase in retail sales was partially 
offset by a decrease in sales for resale revenue.  Residential sales volumes 
increased 7% while commercial sales volumes increased 5%.  These increases 
were primarily due to warmer summer weather.  Cooling degree days were 11% 
higher in 1995 than in 1994.  Industrial sales volumes increased 1% compared 
to 1994.  CILCO set a new all-time system peak demand of 1,188 megawatts (MW) 
on August 17, 1995.  

Electric gross margin increased 2% in 1994, primarily due to a 3% increase in 
retail kilowatt hour sales.  The ratio of 1994 gross margin to revenue 
remained relatively constant compared to prior years.  Increases in the number 
of residential and commercial customers, higher demand by commercial customers 
and warmer summer weather contributed to the increased sales volumes.  Cooling 
degree days were 5% higher in 1994 than in 1993.  Industrial sales volumes 
increased 3% compared to 1993, due to greater demand by several of CILCO's 
large industrial customers.  

Sales for resale decreased 37% in 1995 compared to 1994 due to lower available 
capacity.  Sales for resale vary based on CILCO@s available capacity for bulk 
power sales, energy requirements of neighboring utilities and the price of 
power available for sale.  In the future, CILCO expects increased competition 
and reduced margins in the sales for resale and purchased power markets (see 
Electric Competition).

The overall level of business activity in CILCO's service territory and 
weather conditions are expected to continue to be the primary factors 
affecting electric sales in the near term.  CILCO's electric sales and gross 
margin may also be affected in the long-term by increased competition in the 
electric utility industry (see Electric Competition). 

The cost of fuel for generation decreased 3% in 1995 primarily due to lower 
coal costs and electric generation.  Substantially all of CILCO's electric 
generation capacity is coal-fired. The cost per ton of coal burned, including 
transportation cost, decreased 5% in 1995 compared to 1994.  The decrease was 
partially offset by an increase in purchased power for the same period.  
Purchased power expense varies based on CILCO's need for energy and the price 
of power available for purchase.  CILCO makes use of purchased power when it 
is economical to do so, or when required to meet its power requirements, such 
as during maintenance outages at CILCO plants.  Costs and savings realized 
from the purchase of power are passed on to CILCO's customers via the fuel 
adjustment clause (FAC), which requires CILCO to pass increases and decreases 
in the cost of fuel through to customers.  CILCO expects the wholesale power 
market to become increasingly competitive due to certain provisions of NEPA 
(see Electric Competition).

Freeman United Coal Mining Company (Freeman), a coal supplier with whom CILCO 
has a long-term contract, notified CILCO of its intent to change from the cash 
method of billing for postretirement benefits/costs other than pensions to the 
accrual basis pursuant to SFAS 106 (see Note 3).  Freeman has billed CILCO an 
additional $5.8 million for postretirement benefit costs for the period from 
January 1, 1993, through December 31, 1995.  CILCO anticipates that Freeman 
will continue to bill CILCO on the accrual basis for such costs.  Based upon 
the language of a 1992 settlement agreement between CILCO and Freeman, CILCO 
believes it is responsible for paying these postretirement benefit costs on a 
cash basis rather than on an accrual basis.  To date, no liability for these 
charges has been recorded and no payments have been remitted to Freeman.  This 
issue has been submitted to arbitration.

CILCO believes that any additional charges which may be paid to Freeman are 
properly recoverable through the FAC.  Management cannot currently determine 
the outcome of this arbitration, but does not believe it will have a material 
adverse impact on CILCO's financial position or results of operations.

Electric operation and maintenance expenses increased 18% in 1995 compared to 
1994.  The 1995 increases were primarily due to the early retirement programs 
(see CILCO's Early Retirement Programs), power plant operating and maintenance 
expenses, and outside services .  The 1995 increases were partially offset by 
decreased costs accrued for certain benefits provided to former or inactive 
employees (see Note 3).  The decrease in 1994 from 1993 was primarily due to 
lower power plant and overhead line maintenance expenses, injury and damage 
claims and other postretirement benefit costs.  

The increases in depreciation and amortization expense in 1995 and 1994 
reflect additions and replacements of utility plant at costs in excess of the 
original cost of the property retired.  

The changes in income taxes in 1995 and 1994 were primarily the result of 
changes in pre-tax income.  

CILCO GAS OPERATIONS

The following table summarizes gas operating revenue and expenses by 
component.  
<TABLE>
<CAPTION>
Components of Gas Operating Income  1995         1994           1993
                                          (In thousands)
<S>                               <C>            <C>            <C>
Revenue:                                                                

Sale of gas                       $142,619       $138,161       $140,620
Transportation services              8,927         10,124         10,134
                                   -------       --------       --------
     Total revenue                 151,546        148,285        150,754
                                   -------       --------       --------
Cost of sales:                                                          
Cost of gas                         68,948         78,696         79,022
Revenue taxes                        6,623          7,190          7,039
                                  --------       --------       --------
     Total cost of sales            75,571         85,886         86,061
                                  --------       --------       --------
          Gross margin              75,975         62,399         64,693
                                  --------      ---------       --------
Operating expenses:                                                     
Operation and  maintenance                                                            
  expenses                          36,443         33,511         31,486
Depreciation and                                                        
  amortization                      16,100         15,219         14,686
Income taxes                         5,292          1,564          4,684
Other taxes                          3,361          3,221          2,779
                                  --------       --------       --------
     Total operating                                                    
       expenses                     61,196         53,515         53,635
                                  --------       --------       --------
     Gas operating income         $ 14,779       $  8,884       $ 11,058
                                  ========       ========       ========

</TABLE>

Gas gross margin increased 22% in 1995 compared to 1994.  Gross margin was 
positively affected by a December 1994 6.7% increase in overall gas base rates 
(see Note 9).  Residential and commercial sales volumes increased 6% and 10%, 
respectively, primarily due to colder weather during the heating season.  
Heating degree days were 9% higher in 1995 than in 1994.  

The cost of gas decreased 12% in 1995, primarily due to lower natural gas 
prices.  The lower natural gas prices were passed through to customers via
the PGA.  Gas operation and maintenance expenses increased 9% in 
1995 and 6% in 1994.  The increase for 1995 was principally due to increased 
pension expenses resulting from the early retirement programs (see CILCO's 
Early Retirement Programs), increased outside services expenses, and increased 
injury and damage claims.  Decreased gas regulatory commission expenses 
partially offset the increases.  The 1994 increases were primarily due to 
increased regulatory costs associated with CILCO's gas rate case and higher 
employee benefit costs related to the implementation of SFAS 112 (see Note 3). 
Decreased other postretirement benefit costs and gas maintenance expenses 
partially offset the increases.  Maintenance expenses decreased as a result of 
the completion of repairs to the Springfield gas distribution system in 1993 
(see Note 9). 

Gas gross margin decreased 4% in 1994, primarily due to a 4% decrease in 
retail sales volumes.  Residential and commercial sales volumes decreased 7% 
and 1%, respectively, primarily due to milder weather during the heating 
season.  Increases in sales volumes by certain classes of industrial customers 
partially offset the decreases in retail sales.  Heating degree days were 8% 
lower in 1994 than in 1993.  The cost of gas decreased in 1994 primarily due 
to decreased retail sales volumes and lower natural gas prices.  

Revenue from gas transportation services decreased 12% in 1995 and decreased 
slightly in 1994, while the volume of gas transported decreased 10% in 1995 
and increased 8% in 1994.  Transportation revenues for 1995 declined primarily 
due to increased customer purchases of gas from CILCO.  The revenue change in 
1994 was not proportional to the changes in volume because certain large 
volume transportation customers negotiated lower unit charges for service. 
Transportation arrangements have made it practical for certain industrial 
customers to continue to use gas instead of switching to alternate fuels, 
allowing CILCO to provide transportation services. There were 391 
transportation customers in 1995 compared to 567 customers in 1994 and 668 in 
1993.  As a result of CILCO's new gas rates (see Note 9), CILCO's system rates 
are more competitive with transportation rates.  Some transportation customers 
switched back to CILCO's system in December 1994 and during 1995.

During 1994 and 1995, CILCO utilized NYMEX (New York Mercantile Exchange) 
futures contracts on a pilot basis to hedge approximately 3% of CILCO-owned 
natural gas storage.  The program, which includes investments in derivatives 
as defined by FASB Statement No. 119, "Disclosure about Derivative Financial 
Instruments and Fair Value of Financial Instruments" (SFAS 119), will be 
expanded in 1996 to hedge a greater portion of CILCO's gas costs.  Costs 
incurred and benefits realized from this program will be passed along to 
customers.

Weather conditions, the ability of customers to purchase gas on the open 
market at competitive rates, the continuing trend toward more efficient gas 
appliances and overall economic conditions in CILCO's service area will affect 
future gas sales.  

The increases in depreciation and amortization expenses in 1995 and 1994 
reflect additions and replacements of utility plant at costs in excess of the 
original cost of the property retired.

The changes in income taxes in 1995 and 1994 were primarily the result of 
changes in taxable income.  

CILCO OTHER INCOME AND DEDUCTIONS

Utility other income increased in 1995 from 1994 primarily due to the sale in 
December 1995 of two parcels of land at the former R. S. Wallace electric 
generating plant site.  The after-tax gain from the sale totalled 
$2.1 million.  In 1994, CILCO entered into an agreement to sell the 95-acre 
site for $7 million.  The remaining three parcels at the site will be sold in 
1996 and 1997.  Interest expense increased primarily due to the issuance of 
$36 million of secured medium-term notes (see Note 7) and an increase in short-
term debt during 1995.

In 1994, disallowed gas plant costs, net of related income taxes, resulting 
from an ICC gas rate order, significantly increased CILCO's other deductions 
(see Note 9).  The civil fine and other costs CILCO agreed to pay as a result 
of the U. S. Department of Justice and the U. S. Department of Transportation 
investigations also contributed to the increase in other deductions.

ESE

The following table summarizes environmental and engineering services revenue 
and expenses.    
<TABLE>
<CAPTION>
Components of ESE Net Income (Loss)   1995           1994      1993
                                                (In thousands)
<S>                                  <C>           <C>       <C>
Environmental and                                            
   engineering services                                      
   revenue                           $127,530      $132,799  $123,162
Direct non-labor project costs         50,245        52,896    43,627
                                     --------      --------  --------
   Net revenue                         77,285        79,903    79,535
                                     --------      --------  --------
Expenses:                                                    
Direct salaries and other costs        38,624        39,720    40,180
General & administrative               30,153        29,319    34,418
Depreciation and amortization           5,646         5,867     6,064
                                     --------      --------  --------
Operating expenses                     74,423        74,906    80,662
                                     --------      --------  --------
Interest                                1,902         1,915     1,719
                                     --------      --------  --------
Income before income taxes                960         3,082    (2,846)
Income taxes                              847         1,258      (580)
                                     --------      --------  --------
ESE net income (loss)                 $   113      $  1,824   $(2,266)
                                     ========      ========   ========

</TABLE>

ESE incurs substantial direct non-labor project costs from the use of 
subcontractors on projects.  These costs are passed directly through to ESE's 
clients.  As a result, a better measure of operating performance is net 
revenue, which is determined by deducting such direct non-labor project costs 
from gross revenues. Net revenue decreased by 3% in 1995 compared to 1994, 
after remaining relatively unchanged in 1994 compared to 1993.  The 1995 
decrease was due primarily to delays in government spending, changes in the 
regulatory climate at both the federal and state levels, and increased 
competition for laboratory services.

The overall decrease in consulting and laboratory net revenues was partially 
offset by the sale of property owned by Savannah (see Capital Resources and 
Liquidity--ESE).  The pre-tax gain on this sale was $1.2 million.  This 
property was acquired in 1994 and was remediated by Savannah and its 
subcontractors.

Direct salaries and other costs reflect the cost of professional and technical 
staff and other costs billable to customers.  Such costs consist of salaries 
and related fringe benefits, including employer-paid insurance, payroll taxes, 
vacations, sick leave, and retirement plan contributions.  General and 
administrative expenses include non-billable employee time devoted to 
marketing, proposals, supervision, and professional development; supplies 
expenses; and corporate administrative expenses.

Direct salaries and other costs decreased by 3% in 1995, after decreasing by 
1% in 1994.  The decreases reflect ESE's adjustment of its staffing levels to 
respond to changing business conditions.

General and administrative expenses increased by 3% in 1995, following a 15% 
decrease in 1994, due to ESE's additional marketing efforts.  

Depreciation and amortization expense declined by 4% in 1995 primarily due to 
the full amortization in early 1995 of a non-compete agreement associated with 
the acquisition of ESE and an increase in fully depreciated assets.  
Amortization expense continues for  the Cost in Excess of Net Assets of 
Acquired Businesses, which is being amortized over 40 years.  

Interest expense remained the same in 1995 after increasing in 1994.

ESE formed a wholly-owned subsidiary, Ordnance/Explosives Environmental 
Services, Inc. (OES), on May 4, 1995, to engage in removing  unexploded 
ordnance and related waste from contaminated sites.  Employees of this 
subsidiary are primarily former military personnel who have been trained in 
unexploded ordnance procedures.  ESE's initial equity investment in the 
subsidiary is $100,000.

On October 24, 1995, ESE formed a wholly-owned subsidiary, ESE Land 
Corporation, to coordinate both organizationally and financially the 
acquisition, remediation and resale of environmentally impaired properties.

ESE's future business activity will continue to be impacted  by the level of 
demand for its services, which is affected by governmental funding levels, the 
enforcement of various federal and state statutes and regulations dealing with 
the environment and the use, control, disposal and clean-up of hazardous 
wastes.  The market for ESE's services is competitive; however, no single 
entity currently dominates the environmental and engineering consulting 
services marketplace.

OTHER BUSINESSES

The following table summarizes Other Businesses revenue and expenses.  Other 
Businesses results include income earned and expenses incurred at the Holding 
Company, CIM, CVI and non-operating interest income of CILCO.

<TABLE>
<CAPTION>
Components of Other Businesses
Net Income (Loss)             1995          1994          1993
                                               (In thousands)
<S>                           <C>        <C>           <C>
Revenue:
Leveraged lease revenue       $6,224     $ 6,907       $ 4,280
Other revenue                  3,242       4,063         3,191
                              ------      ------       -------
Total revenue                  9,466      10,970         7,471
                              ------     -------       -------
Expenses:                                                  
Operating expenses             5,064       5,527         2,637
Depreciation and                                           
amortization                     203         214           177
Interest expense               4,227       3,624         3,190
Income and other taxes           308         123        (1,283)
Minority interest                --          --            260
                              ------     -------        -------
Total expenses                 9,802       9,488         4,981
                              ------     -------        -------
Other businesses net income                                
  (loss)                      $ (336)    $ 1,482       $ 2,490
                              ======     =======       =======

</TABLE>

Leveraged lease revenues declined by 10% in 1995.  Under generally accepted 
accounting principles pertaining to leveraged leases,  revenues decline as the 
lease portfolio matures.  During 1996 and future years, CIM expects leveraged 
lease revenues to decrease, absent any investment in new leases.

Leveraged lease revenues in 1994 reflected a full year's revenues from two 
leveraged lease investments made in late 1993.  This increase was partially 
offset by a decline in 1994 revenues from CIM's other leveraged leases.

Other revenues decreased in 1995 primarily because 1994 results included a 
$1.8 million gain from the sale of Tucson Electric Power (TEP) common stock 
and warrants.  In 1993, CIM sold one million shares of TEP stock for a $2 
million gain.  The effect of the gain in 1994 was partially offset by the 
inclusion of a full year's revenues from CILCORP Energy Services Inc. (CESI) 
in 1995.  This subsidiary of CVI was formed in 1994 to market energy related 
services and consumer products.

Operating expenses declined in 1995 primarily because 1994 expenses include 
several one-time charges, including termination of a lease at an ESE facility 
which it no longer uses.  The lease was entered into during negotiations which 
led to CILCORP's 1990 acquisition of ESE.  The effect of the one-time charges 
in 1994 was partially offset by the inclusion of a full year's costs from CESI 
in 1995.

Interest expense increased in 1995 and 1994 due to higher average debt 
balances used to finance working capital and CILCO capital expenditures.

Income and other taxes increased in 1995 primarily because  the expense in 
1994 includes a reduction in taxes to reflect the settlement of several issues 
with the Internal Revenue Service (IRS) which were unrelated to CIM's lease 
portfolio.  Income and other taxes in 1993 include a $3.1 million reversal of 
tax expense which had been recorded in prior years to reflect the potential 
unfavorable outcome of a tax dispute between the Company and the IRS regarding 
the depreciable life of the Springerville Unit No. 1 lease.  Offsetting this 
reduction in 1993 was an additional $1.1 million of income tax expense to 
record the effect of an increase in the federal income tax rate on the 
Company's lease portfolio.  

In December 1993, CIM purchased the remaining 19% minority interest in a 
subsidiary, CILCORP Lease Management Inc., for $1.4 million.

<PAGE>
Management's Report
To the Stockholders of CILCORP Inc.:

Management has prepared the accompanying financial statements and notes for 
CILCORP Inc. and its consolidated subsidiaries in accordance with generally 
accepted accounting principles.  Estimates and judgments used in developing 
these statements are the responsibility of management.  Financial data
presented throughout this report is consistent with these statements.

CILCORP Inc. maintains a system of internal accounting controls which
management believes is adequate to provide reasonable assurance as to the
integrity of accounting records and the protection of assets.  Such controls
include established policies and procedures, a program of internal audit and
the careful selection and training of qualified personnel.

The financial statements have been audited by CILCORP's independent public 
accountants, Arthur Andersen LLP, whose appointment was ratified by 
stockholders.  Their audit was conducted in accordance with generally accepted 
auditing standards and included an assessment of selected internal accounting 
controls only to determine the scope of their audit procedures.  The report of 
the independent public accountants is contained in this annual report.

The Audit Committee of the Board of Directors, consisting solely of outside 
directors, meets periodically with the independent public accountants, internal 
auditors and management to review accounting, auditing, internal accounting 
control, and financial reporting matters.  The independent public accountants 
have direct access to the Audit Committee.  The Audit Committee meets
separately with the independent public accountants.



R. O. Viets 
President and Chief Executive Officer                     



J. L. Barnett
Controller

Report of Independent Public Accountants
To the Stockholders of CILCORP Inc.:

We have audited the accompanying consolidated balance sheets of CILCORP Inc.
(an Illinois corporation) and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, cash flows, stockholders'
equity and segments of business for each of the three years in the period
ended December 31, 1995.  These financial statements are the responsibility
of the Company's management.  Our responsibility is to express an opinion
on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of CILCORP Inc. and subsidiaries 
as of December 31, 1995 and 1994, and the results of their operations and their 
cash flows for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.



Arthur Andersen LLP
Chicago, Illinois
February 2, 1996

<PAGE>
<TABLE>
Consolidated Statements of Income
CILCORP Inc. and Subsidiaries
<CAPTION>
For the Years Ended December 31       1995         1994          1993   
                                (In thousands except per share amounts)
<S>                                <C>          <C>          <C>
Revenue:
Electric                           $326,198     $313,085     $303,124
Gas                                 151,546      148,285      150,754
Environmental and Engineering                                
   Services                         127,530      132,799      123,162
Other Businesses                      9,466       10,970        7,471
                                   --------     --------     --------
   Total                            614,740      605,139      584,511
                                   --------     --------     --------
Operating Expenses:                                          
Fuel for Generation and                                      
   Purchased Power                  106,588      106,617      100,866
Gas Purchased for Resale             68,948       78,696       79,022
Other Operations and Maintenance    243,043      234,323      225,135
Disallowed Plant Cost of                                     
   Regulated Subsidiary               --           7,522        --
Depreciation and Amortization        63,326       61,143       59,975
State and Local Revenue Taxes        20,866       20,485       19,466
Other Taxes                          16,844       16,640       16,412
                                   --------     --------     --------
   Total                            519,615      525,426      500,876
                                   --------     --------     --------
Fixed Charges and Other:                                     
Interest Expense                     29,861       26,341       27,363
Preferred Stock Dividends                                    
   of Subsidiary                      3,299        2,980        4,043
Allowance for Funds Used During                              
   Construction                        (514)      (1,040)        (199)
Other                                   623          666          516
                                    --------     --------     --------
   Total                             33,269       28,947       31,723
                                    --------     --------     --------
Income Before Income Taxes           61,856       50,766       51,912
Income Taxes                         23,274       18,180       18,069
                                    --------     --------     --------
Net Income Including Minority                                
   Interest                          38,582       32,586       33,843
Minority Interest                       --           --           260
                                   --------     --------     --------
   Net Income Available for                                  
      Common Stockholders          $ 38,582     $ 32,586     $ 33,583
                                   ========     ========     ========

Average Common Shares                                                   
   Outstanding                       13,147       13,026       12,914

                                    ========     ========     ========
   Net Income Per Common Share        $2.93        $2.50        $2.60
                                    ========     ========     ========
   Dividends Per Common Share         $2.46        $2.46        $2.46
                                      ========     ========     ========

<FN>
The accompanying Notes to Financial Statements are an integral part of these 
statements.
</TABLE> 

<PAGE>
<TABLE>
Consolidated Balance Sheets
CILCORP Inc. and Subsidiaries
<CAPTION
Assets (As of December 31)                                   1995          1994
                                                             (In thousands)
<S>                                                     <C>             <C>
Current Assets:                                                                

Cash and Temporary Cash Investments                     $   17,100       $  1,604
Receivables, Less Reserves of $2,223 and $2,291             68,479         55,779
Accrued Unbilled Revenue                                    42,842         40,474
Fuel, at Average Cost                                       11,596         14,765
Materials and Supplies, at Average Cost                     16,963         16,731
Gas in Underground Storage, At Average Cost                 13,592         17,484
Prepayments and Other                                       14,921         12,402
                                                         ----------      ----------
     Total Current Assets                                  185,493        159,239
                                                         ----------  ----------
Investments and Other Property:                                                
Investment in Leveraged Leases                             127,141      120,961
Other Investments                                            7,316        5,427
                                                         ----------  ----------
   Total Investments and Other Property                    134,457      126,388
                                                         ----------  ----------
Property, Plant and Equipment:                                                 
Utility Plant, at Original Cost                                                
   Electric                                              1,142,945    1,092,382
   Gas                                                     379,985      355,270
                                                         ----------  ----------
                                                         1,522,930    1,447,652
Less - Accumulated Provision for Depreciation              682,574      653,571
                                                         ----------  ----------
                                                           840,356      794,081
Construction Work in Progress                               44,749       71,105
Plant Acquisition Adjustments, being Amortized to 1999       2,642        3,355
Other, Net of Depreciation                                  22,774       23,152
                                                         ----------  ----------
     Total Property, Plant and Equipment                   910,521      891,693
                                                         ----------  ----------
Other Assets:                                                                  
Prepaid Pension Expense                                        536       13,312
Cost in Excess of Net Assets of Acquired Businesses,                           
  Net of Accumulated Amortization of $4,293 and $3,589      23,845       24,548
Other                                                       21,219       23,204
                                                         ----------  ----------
     Total Other Assets                                     45,600       61,064
                                                         ----------  ----------
     Total Assets                                       $1,276,071   $1,238,384
                                                         ==========  ==========

<FN>
The accompanying Notes to Financial Statements are an integral part of these
balance sheets.
</TABLE>

<PAGE>
<TABLE>
Consolidated Balance Sheets
CILCORP Inc. and Subsidiaries
<CAPTION>
Liabilities and Stockholders' Equity (As of December 31)                      
                                                          1995            1994 
                                                              (In thousands)
 <S>                                                      <C>             <C>
Current Liabilities:                                                               
Current Portion of Long-Term Debt                         $   19,052      $ 21,200

Notes Payable                                                 47,100        29,400
Accounts Payable                                              44,550        51,952
Accrued Taxes                                                  5,035         7,729
Accrued Interest                                              10,059         9,024
Purchased Gas Adjustment Over-Recoveries                       1,987         2,142
Other                                                         15,259        16,557
                                                          ----------      ----------
     Total Current Liabilities                               143,042       138,004
                                                          ----------      ----------
Long-Term Debt                                               344,113       326,695
                                                          ----------     ----------
Deferred Credits and Other Liabilities:                                           
Deferred Income Taxes                                        241,603       246,815
Net Regulatory Liability of Regulated Subsidiary              59,482        59,997
Deferred Investment Tax Credit                                24,485        26,178
Other                                                         35,248        29,860
                                                          ----------       ----------
     Total Deferred Credits                                  360,818       362,850
                                                          ----------       ----------
Preferred Stock of Subsidiary                                 66,120        66,120
                                                          ----------       ----------
Stockholders' Equity: (See Statements on page 33)                                 
Common Stock, no par value; Authorized                                            
   50,000,000 shares - Outstanding 13,335,606 and                                 
   13,035,756 shares                                         179,330       167,987
Retained Earnings                                            182,648       176,728
                                                          ----------       ----------
     Total Stockholders' Equity                              361,978       344,715
                                                          ----------       ----------
     Total Liabilities and Stockholders@ Equity           $1,276,071    $1,238,384
                                                          ==========       ==========

<FN>
The accompanying Notes to Financial Statements are an integral part of these
balance sheets.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows 
CILCORP Inc. and Subsidiaries
<CAPTION>
For the Years Ended December 31         1995          1994        1993
                                                 (In thousands)           
<S>                                     <C>           <C>           <C>
Cash Flows from Operating Activities:                                        
Net Income Before Preferred Dividends   $ 41,881      $ 35,566      $ 37,626
                                        --------      --------      --------
Adjustments to Reconcile Net Income to                              
   Net Cash Provided by Operating                                   
   Activities:                                                      
   Non-Cash Lease & Investment Income     (6,224)       (7,121)       (4,280)
   Depreciation and Amortization          63,326        61,143        59,975
   Disallowed Plant Cost of Regulated                               
     Subsidiary                            --            7,522         --
   Deferred Income Taxes, Investment                                 
     Tax Credit and Regulatory                                      
     Liability of Subsidiary, Net         (7,420)        5,745         6,354
Changes in Operating Assets and                                     
   Liabilities:                                                     
   (Increase) Decrease in Accounts                                  
      Receivable and Accrued Unbilled                               
      Revenue                            (15,068)          276         9,476
   (Increase) Decrease in Inventories      6,829           565        (5,609)
   Increase (Decrease) in Accounts                                  
     Payable                              (7,402)        4,284         8,067
   (Increase) Decrease in Other Assets    12,591        (4,509)       (7,831)
   Increase (Decrease) in Other                                     
      Liabilities                          2,276         6,885        (6,565)
                                        --------      --------      --------
   Total Adjustments                      48,908        74,790        59,587
                                        --------      --------      --------
   Net Cash Provided by Operating                                   
      Activities                          90,789       110,356        97,213
                                        --------      --------      --------
Cash Flows from Investing Activities:                               
Additions to Plant                       (74,046)      (95,762)      (76,933)
Purchase of Long-Term Investments and                               
   Leveraged Lease Property               (1,617)          (11)      (13,595)
Proceeds from Sale of Long-Term                                     
   Investments and Leveraged Lease                                  
   Property                                  500         4,667         3,787
Purchase of Minority Interest in                                    
   Consolidated Subsidiary                --            --            (1,425)
Other                                     (8,836)       (6,559)        2,625
                                        --------      --------      --------
     Net Cash Provided by (Used) in                                 
Investing Activities                     (83,999)      (97,665)      (85,541)
                                         --------      --------      --------
Cash Flows from Financing  Activities:                              
Net Increase (Decrease) in Short-Term                               
   Debt                                   17,700        (1,800)        1,949
Proceeds from Issuance of Long-Term                                 
   Debt                                   36,473        22,000       107,269
Repayment of Long-Term Debt              (21,203)         --        (108,781)
Proceeds from Issuance of Preferred                                 
   Stock by Subsidiary                      --            --          46,006
Retirement of Preferred Stock by                                    
   Subsidiary                               --            --         (46,051)
Common Dividends Paid                    (32,308)      (32,063)      (31,757)
<PAGE>
Preferred Dividends Paid                 (3,299)       (2,980)       (4,043)
Common Stock Issued                       11,343         2,325         2,365
Preferred and Common Stock Issuance                                 
   Costs                                    --              (9)       (1,590)
                                        --------      --------      --------
     Net Cash Used in Financing                                     
         Activities                        8,706       (12,527)      (34,633)
                                        --------      --------      --------
Net Increase (Decrease) in Cash and                                 
   Temporary Cash Investments             15,496           164       (22,961)
Cash and Temporary Cash Investments                                 
   at Beginning of Year                    1,604         1,440        24,401
                                        --------      --------      --------
   Cash and Temporary Cash Investments                              
      at End of Year                    $ 17,100      $  1,604      $  1,440
                                        ========      ========      ========

<FN>
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
CILCORP Inc. and Subsidiaries
<CAPTION>
                                        Common Stock           Retained
                                   Shares       Amount      Earnings      Total 
                                        (In thousands except share amounts)  
<S>                               <C>           <C>        <C>         <C>
Balance at December 31, 1992      12,909,281    $163,297   $175,978    $339,275
Common Stock Issued                   62,220       2,365                  2,365
Cash Dividend Declared on                                                
   Common Stock ($2.46 per                                  (31,757)    (31,757)
   share)                                                                 
Preferred and Common Stock                                                 
   Issuance Costs                                            (1,590)     (1,590)
Net Income                                                   33,583      33,583
                                  ----------    --------   --------    --------
Balance at December 31, 1993      12,971,501    $165,662   $176,214    $341,876
Common Stock Issued                   64,255       2,325                  2,325
Cash Dividend Declared on                                                  
   Common Stock ($2.46 per                                  (32,063)    (32,063)
   share)                                                                  
Preferred and Common Stock                                                 
   Issuance Costs                                                (9)         (9)
Net Income                                                   32,586      32,586
                                  ----------    --------   --------    --------
Balance at December 31, 1994      13,035,756    $167,987   $176,728    $344,715
Common Stock Issued                  299,850      11,343                 11,343
Cash Dividend Declared on                                                  
   Common Stock ($2.46 per                                                 
   share)                                                   (32,308)    (32,308)
Additional Minimum Liability of                                             
  Non-Qualified Pension Plan at                                            
  December 31, 1995, net of                                                
  $233 taxes                                                   (354)       (354)
Net Income                                                   38,582      38,582
                                  ----------    --------   --------    --------
Balance at December 31, 1995      13,335,606    $179,330   $182,648    $361,978
                                  ==========    ========   ========     ========

<FN>
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE> 
<PAGE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Operating Information For the Years Ended December 31
                                          1995           1994           1993
                                                   (In thousands)
<S>                                      <C>            <C>            <C>
Utility Segment:
Electric Operations                                                            

Revenue                                  $326,198       $313,085       $303,124
Expenses                                  277,429        263,462        253,995
                                         --------       --------       --------
Operating Income                           48,769         49,623         49,129
Income Taxes                               17,975         19,925         17,542
                                         --------       --------       --------
Operating Income Before                                                        
  Income Taxes                           $ 66,744       $ 69,548       $ 66,671
                                         ========       ========       ========
Depreciation and   Amortization                                                
                                         $ 40,665       $ 39,130       $ 38,337
                                         ========       ========       ========
Capital Expenditures                     $ 45,466       $ 66,537       $ 41,880
                                         ========       ========       ========
Gas Operations                                                                 
Revenue                                  $151,546       $148,285       $150,754
Expenses                                  136,767        139,401        139,696
                                         --------       --------       --------
Operating Income                           14,779          8,884         11,058
Income Taxes                                5,292          1,564          4,684
                                         --------       --------       --------
Operating Income Before                                                        
 Income Taxes                            $ 20,071       $ 10,448       $ 15,742
                                         ========       ========       ========
Depreciation and  Amortization                                                 
                                         $ 16,100       $ 15,219       $ 14,686
                                         ========       ========       ========
Capital Expenditures                     $ 24,043       $ 24,867       $ 30,677
                                         ========       ========       ========

</TABLE>
<TABLE>
<CAPTION>
Major Customer For the Years Ended December 31
                             1995              1994               1993
<S>                   <C>         <C>     <C>       <C>      <C>       <C>
Caterpillar Inc.                                                            

Electric Revenue      $40,109     12.3%   $41,422   13.2%   $39,831    13.1%
Gas Revenue             1,022       .7%     1,719    1.2%     1,581     1.0%
                      -------     -----   -------    ----   -------    ---- 
     Total            $41,131      8.6%   $43,141    9.4%   $41,412     9.1%
                      =======     =====   =======  ====     =======     ==== 

</TABLE>
<TABLE>
<CAPTION>
Utility Identifiable Assets as of December 31 
                                   1995            1994          1993
<S>                              <C>          <C>              <C>
Electric                         $  735,463   $  718,431       $  684,618

Gas                                 273,428      260,070          259,462
Other Utility Assets*                43,122       38,505           44,245
                                ----------     ----------       --------
     Total Utility Assets        $1,052,013   $1,017,006       $  988,325
                                ==========     ==========       ========

<FN>
*Other investments, miscellaneous accounts receivable, prepaid assets,    
 deferred pension costs, and unamortized debt, discount, and expense  

The accompanying Notes to Financial Statements are an integral part of 
these statements. 
</TABLE>
<PAGE>
<TABLE>
Environmental and Engineering Services Segment
<CAPTION>
For the Years Ended December 31          1995          1994       1993
                                                  (In thousands)
<S>                                      <C>          <C>       <C>
Revenue                                  $127,530     $132,799  $123,162
Operating Expenses                        124,668      127,802   124,289
                                         --------     --------  --------
     Operating Income (Loss) Before                             
        Income Taxes                     $  2,862     $  4,997  $ (1,127)
                                         ========     ========  ========
Depreciation and Amortization            $  5,646     $  5,867  $  6,064
                                         ========     ========  ========
Capital Expenditures                     $  4,537     $  4,358  $  4,300
                                         ========     ========  ========

</TABLE>

<TABLE>
Environmental and Engineering Services
<CAPTION>
Identifiable Assets as of December 31       1995             1994        1993
<S>                                      <C>              <C>          <C>
Property, Plant and Equipment            $21,961          $22,254      $23,116

Cost in Excess of Net Assets of                                               
   Acquired Businesses, Net of                                                
   Amortization                           23,845           24,548       25,251
Accounts Receivable and Unbilled                                              
   Revenue                                37,238           42,199       36,637
Other Assets*                              4,908            4,463        2,433
                                         -------          -------      -------
   Total Environmental and                                                    
    Engineering Services Assets          $87,952          $93,464      $87,437
                                         =======          =======      =======

<FN>
*Real estate held for resale and other current assets
</TABLE>
<TABLE>
Other Businesses Segment
<CAPTION>
For the Years Ended December 31           1995              1994         1993
<S>                                       <C>               <C>          <C>
Revenue                                   $9,466            $10,970      $ 7,471

Expenses                                   9,494              9,365        6,264
                                          ------            -------      -------
     Income (Loss) Before                                                      
       Income Taxes                       $  (28)           $ 1,605      $ 1,207
                                          ======            =======      =======

</TABLE>
<TABLE>
<CAPTION>
Other Businesses Identifiable
Assets as of December 31               1995          1994           1993
<S>                                  <C>            <C>           <C>
Leveraged Leases                     $127,140       $120,961      $114,803

Cash and Temporary Cash                                                   
   Investments                            544          1,179         1,564
Other Assets                            8,422          5,774         6,311
                                     --------       --------      --------
  Total Other Businesses Assets      $136,106       $127,914      $122,678
                                     ========       ========      ========

<FN>
The accompanying Notes to Financial Statements are an integral part of these 
statements.
</TABLE> 
<PAGE>
                         NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of CILCORP Inc. 
(CILCORP or the Company), Central Illinois Light Company (CILCO), 
Environmental Science & Engineering, Inc. (ESE) and CILCORP's other 
subsidiaries after elimination of significant intercompany transactions.  
Prior year amounts have been reclassified on a basis consistent with the 1995 
presentation.

CILCORP is an investor-owned public utility holding company.  The Company's 
principal business subsidiary is engaged in the generation, transmission, 
distribution and sale of electric energy in an area of approximately 3,700 
square miles in central and east-central Illinois, and the purchase, 
distribution, transportation and sale of natural gas in an area of 
approximately 4,500 square miles in central and east-central Illinois.  The 
Company also has four other first-tier subsidiaries which are nonutility 
businesses.  These subsidiaries provide:  engineering and environmental 
consulting, analysis and laboratory services; acquire and remediate 
environmentally impaired property for resale; manage the Company's investment 
portfolio; pursue investment opportunities in new ventures and the expansion 
of existing ventures in environmental services, energy, biotechnology, health 
care and telecommunications; and provide wholesale marketing and brokering 
services for electric power, transmission services, and fuel supplies.  

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the reported amounts of assets and liabilities and disclosure of 
contingent assets and liabilities at the date of the financial statements and 
the reported amounts of revenues and expenses during the reporting period.  
Actual results could differ from those estimates.

REGULATION

CILCO is a public utility subject to regulation by the Illinois Commerce 
Commission and the Federal Energy Regulatory Commission with respect to 
accounting matters, and maintains its accounts in accordance with the Uniform 
System of Accounts prescribed by these agencies.

As a regulated public utility, CILCO is subject to the provisions of Statement 
of Financial Accounting Standards No. 71, "Accounting for the Effects of 
Certain Types of Regulation" (SFAS 71).  Regulatory increases and decreases, 
respectively, of assets and liabilities represent probable future increases 
and decreases, respectively, of revenues to CILCO resulting from the 
ratemaking action of regulatory agencies.  Net regulatory liabilities are 
approximately $59.5 million and $60 million at December 31, 1995 and 1994, 
respectively (see Note 2).  At December 31, 1995 and 1994, the regulatory 
assets included on the Consolidated Balance Sheets were as follows:
<TABLE>
<CAPTION>
                                                       1995       1994
                                                       (In thousands) 
<S>                                                  <C>         <C>
Included in prepayments and other:                                      

    Fuel and gas cost adjustments                    $ 1,516     $ 3,682
    Coal tar remediation cost - estimated                               
            current                                    1,500         300
    Gas transition costs                               2,268       1,171
                                                     -------      -------
          Current costs included in                                     
            prepayments and other                      5,284       5,153
                                                    -------      -------
Included in other assets:                                               
    Coal tar remediation cost, net of                                   
      recoveries                                       4,222       4,993
    Gas transition costs                               1,656       2,781
    Deferred gas costs                                 3,207       3,895
    Unamortized loss on reacquired debt                6,029       6,486
                                                     -------      -------
         Future costs included in other assets        15,114      18,155
                                                     -------      -------
              Total regulatory assets                $20,398     $23,308
                                                     =======      =======

</TABLE>

If a portion of CILCO's operations becomes no longer subject to the provisions 
of SFAS 71, a write-off of related regulatory assets and liabilities would be 
required, unless some form of transition cost recovery (refund) continues 
through rates established and collected for CILCO's remaining regulated 
operations.  In addition, CILCO would be required to determine any impairment 
to the costs recorded for  deregulated plant and inventory assets.

UTILITY OPERATING REVENUES, FUEL COSTS AND COST OF GAS

Electric and gas revenues include service provided but unbilled at year end.  
Substantially all electric rates and gas system sales rates of CILCO include a 
fuel adjustment clause and a purchased gas adjustment clause, respectively.  
These clauses provide for the recovery of changes in electric fuel costs, 
excluding coal transportation, and changes in the cost of gas on a current 
basis in billings to customers.  CILCO adjusts the cost of fuel and cost of 
gas to recognize over or under recoveries of allowable costs.  The cumulative 
effects are deferred on the Balance Sheets as a current asset or current 
liability (see Regulation, above) and adjusted by refunds or collections 
through future billings to customers.  

CONCENTRATION OF CREDIT RISK

CILCO, as a public utility, must provide service to customers within its 
defined service territory and may not discontinue service to residential 
customers when certain weather conditions exist.  CILCO continually reviews 
customers' creditworthiness and requests deposits or refunds deposits based on 
that review.  At December 31, 1995, CILCO had net receivables of 
$42.3 million, of which approximately $5.5 million was due from its major 
industrial customers.

See Note 5 for a discussion of receivables related to CILCORP Investment 
Management Inc.'s leveraged lease portfolio.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of Cash and Temporary Cash Investments, Other Investments, 
Preferred Stock with Mandatory Redemption and Notes Payable approximates fair 
value.  The estimated fair value of the Company's Long-Term Debt, including 
current maturities, was $399 million at December 31, 1995, and $340 million at 
December 31, 1994, based on current market interest rates for other companies 
with comparable credit ratings, capital structures, and size.

ENVIRONMENTAL AND ENGINEERING SERVICES REVENUES

ESE performs professional environmental and engineering consulting and 
analytical laboratory services under time and material, cost-plus and fixed-
price contracts.  These service revenues include amounts for services provided 
but unbilled at year end.  Revenues from time and material and cost-plus 
contracts are recognized as costs are incurred.  Revenues from fixed-price 
contracts are recognized under the percentage-of-completion method.    

DEPRECIATION AND MAINTENANCE

Provisions for depreciation of utility property for financial reporting 
purposes are based on straight-line composite rates.  The annual provisions 
for utility plant depreciation, expressed as a percentage of average 
depreciable utility property, were 3.8% and 4.6% for electric and gas, 
respectively, for each of the last three years.  Utility maintenance and 
repair costs are charged directly to expense.  Renewals of units of property 
are charged to the utility plant account, and the original cost of depreciable 
property replaced or retired, together with the removal cost less salvage, is 
charged to the accumulated provision for depreciation.  

Non-utility property is depreciated over estimated lives ranging from 5 to 40 
years.

COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES

Cost in excess of net assets of acquired businesses is being amortized using 
the straight-line method over 40 years.  The amortization is related to ESE 
and is a component of depreciation and amortization expense on the 
Consolidated Statements of Income.

INCOME TAXES

The Company follows a policy of comprehensive interperiod income tax 
allocation.  Investment tax credits related to utility property have been 
deferred and are being amortized over the estimated useful lives of the 
related property.  CILCORP and its subsidiaries file a consolidated federal 
income tax return.  Income taxes are allocated to the individual companies 
based on their respective taxable income or loss.

CONSOLIDATED STATEMENTS OF CASH FLOWS

The Company considers all highly liquid debt instruments purchased with a 
remaining maturity of three months or less to be cash equivalents for purposes 
of the Consolidated Statements of Cash Flows.

Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>               
                                   1995         1994         1993

                                        (In thousands)
<S>                             <C>           <C>          <C>
Interest                        $27,615       $27,663      $24,514

Income taxes                     32,673        13,103       14,760
                                -------       -------      -------

</TABLE>

COMPANY-OWNED LIFE INSURANCE POLICIES

The following amounts related to Company-owned life insurance contracts, 
issued by one major insurance company, are included in Other Investments:
<TABLE>
<CAPTION>               
                                               1995       1994
                                               (In thousands)
<S>                                          <C>        <C>  
Cash surrender value of contracts            $35,135    $30,468
Borrowings against contracts                 (33,211)   (28,831)
                                             -------    -------
   Net investment                            $ 1,924    $ 1,637
                                             =======    =======

</TABLE>
Interest expense related to borrowings against Company-owned life insurance, 
included in "Other" on the Consolidated Statements of Income, was 
$2.3 million, $2 million and $1.4 million  for 1995, 1994 and 1993, 
respectively.

NOTE 2 - INCOME TAXES

The Company follows the liability method to account for income taxes.  Under 
the liability method, deferred income taxes are recognized at currently 
enacted income tax rates to reflect the tax effect of temporary differences 
between the financial reporting basis and the tax basis of assets and 
liabilities.  Temporary differences occur because the income tax law either 
requires or permits certain items to be reported on the Company's income tax 
return in a different year than they are reported in the financial statements.  
CILCO has recorded a regulatory liability to account for the net effect of 
expected future regulatory actions related to unamortized investment tax 
credits, income tax liabilities initially recorded at tax rates in excess of 
current rates, the equity component of Allowance for Funds Used During 
Construction and other items for which deferred taxes had not previously been 
provided.  The temporary differences related to the consolidated net deferred 
income tax liability at December 31, 1995, December 31, 1994 and December 31, 
1993, were as follows:

<TABLE>
<CAPTION>
December 31                             1995              1994             1993
                                            (In thousands)
<S>                                 <C>               <C>              <C>
Deferred tax liabilities:      
   Property, including                                                  
     allowance for funds used                                           
     during construction            $217,049          $216,304          $216,897
   Leveraged leases                   93,566            88,308            80,129
   Other                               5,641            13,760            14,427
Deferred tax assets:                                                    
   Other                             (15,171)          (11,560)          (12,079)
   Net regulatory liability of                                          
     regulated subsidiary            (59,482)          (59,997)          (69,477)
                                     --------          --------          --------
      Deferred income taxes         $241,603          $246,815          $229,897
                                    ========          ========          ========

<FN>
Of the $5,212,000 decrease in the consolidated net deferred income tax 
liability at December 31, 1995, from December 31, 1994, $5,377,000 is due to 
current year deferred federal and state income tax. An additional reduction to 
deferred tax liability of approximately $233,000 was recorded due to an equity 
adjustment related to the CILCO early retirement programs.
</TABLE>

Income tax expenses were as follows:
<TABLE>
<CAPTION>
Years Ended December 31             1995          1994         1993
                                             (In thousands)
<S>                           <C>            <C>           <C>
Current income taxes                                                        
Federal                       $25,024        $11,825       $10,102
State                           5,320          2,238         3,352
                              -------        -------       -------
  Total current taxes          30,344         14,063        13,454
                              -------        -------       -------
Deferred income taxes, net                                 
Property-related deferred                                  
  income taxes                    516         (1,094)       (2,316)
Leveraged leases                6,341          8,179         5,257
Unbilled revenue               (2,982)           222           758
Gas take-or-pay settlements      (751)        (1,244)        1,413
Coal tar remediation costs        642            253           120
Pension expenses               (6,673)          (145)         (646)
Customer advances              (1,467)          (143)          (24)
Other                          (1,003)          (218)        1,747
                              --------       -------       -------
   Total deferred income                                   
           taxes, net          (5,377)         5,810         6,309
                              --------       -------       -------
Investment tax credit                                      
  amortization                 (1,693)        (1,693)       (1,694)
                              --------       -------       -------
   Total income tax                                        
     provisions               $23,274        $18,180       $18,069
                              ========       =======       =======

<FN>
Total deferred income taxes, net, includes deferred state income taxes of 
$(67,000), $1,801,000 and $1,827,000 for 1995, 1994 and 1993, respectively.
</TABLE>

The following table represents a reconciliation of the effective tax rate with 
the statutory federal income tax rate.
<TABLE>
<CAPTION>                                        1995         1994        1993
<S>                                            <C>            <C>         <C>
Statutory federal income tax                   35.0%          35.0%       35.0%
                                               -----          -----      -----
Equity component of AFUDC not subject to                              
  taxation                                      (.1)            (.4)       --
Depreciation differences for which
  deferred taxes have not been provided         1.0             1.2        1.0
Amortization of investment tax credit          (2.7)           (3.3)      (3.3)       
State income taxes                              5.9             5.3        7.1
Excess of book over tax basis of assets          .4              .5         .5
Preferred dividends of subsidiary and                                 
  other permanent differences                   1.1             2.3        2.4
Tax provision adjustment                         .5            (1.3)      (5.3)
Civil fine                                        --             .7        --
Other differences                              (3.5)           (4.2)      (2.6)       
                                               -----          -----        ----
   Total                                        2.6               .8       (.2)    
                                               -----          -----        ---- 
Effective income tax rate                      37.6%           35.8       34.8       
                                               =====          ====         ====

</TABLE>

NOTE 3 - POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS

POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE

CILCO has recorded a liability of approximately $0.9 million and $1.5 million
at December 31, 1995 and 1994, respectively, for benefits other than pensions
or health care provided to former or inactive employees.

PENSION BENEFITS

Substantially all of CILCO's full-time employees, including those assigned to
the Holding Company and QST, are covered by trusteed, non-contributory defined
benefit pension plans.  Benefits under these qualified plans reflect the
employee's years of service, age at retirement and maximum total compensation
for any consecutive sixty-month period prior to retirement.  CILCO also has an
unfunded nonqualified plan for certain employees.

Pension costs for the past three years were charged as follows:
<TABLE>
<CAPTION>                                 1995         1994        1993
                                        (In thousands)   
<S>                                     <C>          <C>          <C>
Operating expenses                      $15,383      $2,465       $1,841

Utility plant and other                   1,139       1,189          925
                                        -------      ------       ------
   Net pension costs                    $16,522      $3,654       $2,766
                                        =======      ======       ======

</TABLE>

Provisions for pension expense reflect the use of the projected unit credit 
actuarial cost method.  At December 31, 1995, CILCO recognized an additional 
minimum liability on the Balance Sheets for the plan in which the accumulated 
benefit obligation exceeds the fair value of plan assets.

The components of net periodic pension costs follows:
<TABLE>
<CAPTION>                                              1995         1994
                                                        (In thousands)
<S>                                                 <C>          <C>
                                                                 
   Cost of pension benefits earned by employees     $  4,654     $  5,589
   Interest cost on projected benefit obligation      15,188       14,422
   Actual return on plan assets                      (50,816)       1,237
   Net amortization and deferral                      34,437      (17,594)
   Special termination benefits                       13,059         --
                                                    --------     --------
   Net pension costs                                $ 16,522     $  3,654
                                                    ========     ========

</TABLE>

During 1995, CILCO recognized $13.1 million of net pension costs in accordance 
with Statement of Financial Accounting Standards No. 88, Employers' Accounting 
for Settlements and Curtailments of Defined Benefit Pension Plans and for 
Termination Benefits.  These amounts represented the costs associated with 
additional benefits extended in connection with voluntary early retirement 
programs.

Information on the funded status of plans in which assets exceed accumulated 
benefits follows:
<TABLE>
<CAPTION>
Actuarial present value of accumulated benefit         1995         1994
  obligation:                                          (In thousands)    
<S>                                                 <C>          <C>
   Vested benefits - employees' rights to receive                 
     benefits no longer contingent upon continued                 
     employment                                     $171,422     $145,975
   Non-vested benefits - employees' rights to                    
     receive benefits contingent upon continued                  
     employment                                       15,266       11,258
                                                    --------     --------
   Net benefit obligation                           $186,688     $157,233
                                                    ========     ========

Funded status:  pension assets and obligations              
   Pension assets at fair market value              $232,560     $192,427
   Projected benefit obligation at present value    (233,746)    (189,438)
   Unrecognized transition asset                      (6,675)      (7,842)
   Unrecognized prior service cost                     9,034       10,603
   Unrecognized net (gain) loss                       (3,338)       7,562
                                                     -------      --------
   Pension asset (liability) recorded on Balance                  
     Sheets                                         $ (2,165)    $ 13,312 
                                                     =======      ========

</TABLE>

Information on the funded status of the plan in which accumulated benefits 
exceed assets follows:

<TABLE>
<CAPTION>
Actuarial present value of accumulated benefit         1995           1994
  obligation:                                             (In thousands)
<S>                                                 <C>          <C>
   Vested benefits - employees' rights to receive                 
     benefits no longer contingent upon continued                 
     employment                                     $1,792       $900
   Non-vested benefits - employees' rights to                    
     receive benefits contingent upon continued                  
     employment                                        132        --
                                                    ------       ----
   Net benefit obligation                           $1,924       $900
                                                    ======       ====
                                                                 

Funded status:  pension assets and obligations              
   Pension assets at fair market value              $    --      $   --
   Projected benefit obligation at present value     (2,689)      (1,002)
   Unrecognized prior service cost                      536          576
   Unrecognized net (gain) loss                       1,352         (363)
   Adjustment to recognize minimum liability         (1,123)        (111)
                                                    -------       -----
   Pension liability recorded on Balance Sheets     $(1,924)     $  (900) 
                                                    =======        =====

</TABLE>

<TABLE>
<CAPTION>
Significant assumptions used for calculations:      1995        1994
<S>                                                <C>          <C>
Discount rate                                      7.25%        8.00%

Expected rate of salary increase                   4.50%        4.50%
Expected long-term rate of return                  8.50%        8.50%

</TABLE>

POSTRETIREMENT HEALTH CARE BENEFITS

Provisions for postretirement benefits expenses are determined under the 
accrual method of accounting. 

Substantially all of CILCO's full-time employees, including those assigned to 
the Holding Company and QST, are currently covered by a trusteed, non-
contributory defined benefit postretirement health care plan.  The plan pays 
stated percentages of most necessary medical expenses incurred by retirees, 
after subtracting payments by Medicare or other providers and after a stated 
deductible has been met.  Participants become eligible for the benefits if 
they retire from CILCO after reaching age 55 with 10 or more years of service.  
ESE does not provide health care benefits to retired employees.

Postretirement health care benefit costs were charged as follows:
<TABLE>
<CAPTION>                                              
                                            1995       1994       1993      
                                                  (In thousands) 
<S>                                        <C>        <C>         <C>
Operating expenses                         $5,108     $5,253      $5,767

Utility plant and other                     1,882      1,913       2,060
                                           ------     ------      ------
   Net postretirement health care                                       
     benefit costs                         $6,990     $7,166      $7,827
                                           ======     ======      ======

</TABLE>

Information on the plans' funded status, on an aggregate basis, follows:
<TABLE>
<CAPTION>
                                                  1995         1994
                                                 (In thousands)   
<S>                                             <C>             <C>        
Components of net postretirement health care 
  benefit costs:
   Service cost - benefits attributed                   
     to service during the period               $ 1,302         $ 1,496
   Actual return on plan assets                  (5,936)            133
   Interest cost on accumulated                        
     postretirement health care                        
     benefit obligation                           4,795           4,469
   Amortization of transition                          
     obligation over 18.6 years                   2,858           2,858
   Other net amortization and                     3,971          (1,790)
     deferral                                          
                                                 -------         -------
   Net postretirement health care                      
     benefit costs                              $ 6,990         $ 7,166
                                                =======         =======
Accumulated postretirement health                      
  care benefit obligation:                             
   Retirees                                     $36,646         $30,849
   Other fully eligible participants             12,668          10,859
   Other active participants                     22,003          20,046
                                                -------         -------
   Total accumulated postretirement                    
     health care benefit obligation              71,317          61,754
                                                       
Less:                                                  
   Unrecognized actuarial gain                    (814)          (3,046)
   Unrecognized transition obligation           38,871           41,730
   Plan assets at fair value                    33,157           22,929
                                                -------         -------
   Accrued postretirement health                       
     care benefit cost liability               $   103          $   141 
                                               =======          =======

</TABLE>

For measurement purposes, the health care cost trend rate averaged 8.5% 
annually for 1995; the rate was assumed to decrease gradually to 6% by 2049 
and remain at that level thereafter.  

Increasing the assumed health care cost trend rate by 1% in each year would 
increase the accumulated postretirement benefit obligation at 
December 31, 1995, by $3.2 million and the aggregate of the service and 
interest cost components of net postretirement health care cost for 1995 by 
$268,000.  The discount rate used in determining the accumulated 
postretirement benefit obligation at December 31, 1995, was 7.25% and at 
December 31, 1994, was 8%.  The weighted average expected return on assets net 
of taxes was 8.1%, where taxes are assumed to decrease return by 0.4%.

NOTE 4 - SHORT-TERM DEBT

Short-term debt at December 31, 1995, consisted of $22.5 million of Holding 
Company bank borrowings and $24.6 million of CILCO commercial paper.  Short-
term debt at December 31, 1994, included $6 million of Holding Company bank 
borrowings and $23.4 million of CILCO commercial paper.

The Holding Company had arrangements for bank lines of credit totaling 
$50 million at December 31, 1995, of which $22.5 million was used.  These 
lines were maintained by commitment fees of 1/8 of 1% per annum in lieu of 
balances.  The Company also had a $5 million discretionary bank line at the 
end of 1995, which was unused.

CILCO had arrangements for bank lines of credit totaling $30 million at 
December 31, 1995, all of which were unused.  These lines of credit were 
maintained by commitment fees of 1/20 of 1% per annum in lieu of balances.  
These bank lines of credit support CILCO's issuance of commercial paper.

At December 31, 1995, ESE had a $10 million bank line of credit, of which $4.4 
million was committed at year end to collateralize performance bonds issued in 
connection with ESE projects.

NOTE 5 - LEVERAGED LEASE INVESTMENTS

The Company, through subsidiaries of CILCORP Investment Management Inc. (CIM), 
is a lessor in seven leveraged lease arrangements under which mining 
equipment, electric production facilities, warehouses, office buildings, 
passenger railway equipment and an aircraft are leased to third parties.  The 
economic lives and lease terms vary with the leases.  CIM's share of total 
equipment and facilities cost was approximately $305 million at December 31, 
1995 and 1994.

The cost of the equipment and facilities owned by CIM is partially financed by 
non-recourse debt provided by lenders, who have been granted as their sole 
remedy in the event of a lessee default, an assignment of rents due under the 
leases and a security interest in the leased property.  Such debt amounted to 
$216 million at December 31, 1995, and $223 million at December 31, 1994.  
Leveraged lease residual value assumptions, which are conservative in relation 
<PAGE>
to independently appraised residual values, are tested on a periodic basis.  
CIM's net investment in leveraged leases at December 31, 1995 and 1994 is 
shown below: 
<TABLE>
<CAPTION>                                        
                                                1995           1994
                                                 (In thousands) 
<S>                                          <C>            <C>
Minimum lease payments receivable            $122,713       $122,757

Estimated residual value                       94,368         94,368
Less:  Unearned income                         89,940         96,164
                                             --------       --------
Investment in lease financing                                       
receivables                                   127,141        120,961
Less:  Deferred taxes arising from                                  
   leveraged leases                            93,566         88,308
                                             --------       --------
     Net investment in leveraged leases      $ 33,575       $ 32,653
                                             ========       ========

</TABLE>

NOTE 6 - PREFERRED STOCK

PREFERRED STOCK OF SUBSIDIARY
<TABLE>
<CAPTION>
At December 31                                1995             1994
                                                 (In thousands)
<S>                                          <C>               <C>
Preferred stock, cumulative                                                  
$100 par value, authorized 1,500,000 shares                                  
   Without mandatory redemption                                       

   4.50% series - 111,264 shares             $11,126           $11,126
   4.64% series - 79,940 shares                7,994             7,994
Class A, no par value, authorized                                     
  3,500,000 shares                                                    
   Flexible auction rate - 250,000                                    
    shares (a)                                25,000            25,000
   With mandatory redemption                                          
   5.85% series - 220,000 shares              22,000            22,000
                                             -------           -------
        Total preferred stock                $66,120           $66,120
                                             =======           =======

<FN>
(a)  Dividend rates at December 31, 1995 and 1994, were 4.40% and 4.72%,  
     respectively.
</TABLE>
All classes of preferred stock are entitled to receive cumulative dividends and 
rank equally as to dividends and assets, according to their respective terms.

The total annual dividend requirement for preferred stock outstanding at
December 31, 1995, is $3.3 million, assuming a continuation of the auction
dividend rate at December 31, 1995, for the flexible auction rate series.

PREFERRED STOCK WITHOUT MANDATORY REDEMPTION

The call provisions of preferred stock redeemable at CILCO's option outstanding
at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Series         Callable Price Per Share (plus accrued dividends)
<S>                                <C>
4.50%                              $110
4.64%                              $102
Flexible Auction Rate              $100
</TABLE>
PREFERRED STOCK WITH MANDATORY REDEMPTION

CILCO's 5.85% Class A preferred stock may be redeemed in 2003 at $100 per
share.  A mandatory redemption fund must be established on July 1, 2003.  The
fund will provide for the redemption of 11,000 shares for $1.1 million on
July 1 of each year through July 1, 2007.  On July 1, 2008, the remaining
165,000 shares will be retired for $16.5 million.  

PREFERENCE STOCK OF SUBSIDIARY, CUMULATIVE

No Par Value, Authorized 2,000,000 shares, of which none have been issued.

PREFERRED STOCK OF HOLDING COMPANY

No Par Value, Authorized 4,000,000 shares, of which none were outstanding
at December 31, 1995 and 1994.

NOTE 7 - LONG-TERM DEBT
<TABLE>
<CAPTION>
At December 31                                  1995           1994
                                                    (In thousands)
<S>                                         <C>              <C>            
CILCO first mortgage bonds                                                  
   5 1/8% series due 1996                   $     --         $ 16,000
   5 1/2% series due 1997                     20,000           20,000
   7 1/2% series due 2007                     50,000           50,000
   8 1/5% series due 2022                     65,000           65,000
Medium-term notes                                         
   5.7% series due 1998                       10,650           10,650
   6.4% series due 2000                       30,000           30,000
   6.82% series due 2003                      25,350           25,350
   6.13% series due 2005                      16,000             --
   7.8% series due 2023                       10,000           10,000
   7.73% series due 2025                      20,000             --
Pollution control refunding bonds                         
   6.5% series F due 2010                      5,000            5,000
   6.2% series G due 2012                      1,000            1,000
   6.5% series E due 2018                     14,200           14,200
   5.9% series H due 2023                     32,000           32,000
                                            --------         --------
                                             299,200          279,200
Unamortized premium and discount on                       
  long-term debt, net                           (803)            (841)
                                            --------          --------
     Total CILCO                            $298,397         $278,359
                                            --------         --------


CILCORP Lease Management Inc.                                                  

Unsecured financial institution borrowings;
interest rate of 9.55%; matures in 1997       $3,000            $3,000

CILCORP Inc.                                                                   
Unsecured medium-term notes; varying in term
from 2 years to 6 years; interest rates
ranging from 8.33% to 9.10%                   42,000            45,000

Other                                            716               336
                                             --------         --------
   Total long-term debt                     $344,113          $326,695
                                             ========         ========

</TABLE>

CILCO's first mortgage bonds are secured by a lien on substantially all of its 
property and franchises.  Unamortized borrowing expense, premium and discount 
on outstanding long-term debt are being amortized over the lives of the 
respective issues.

Total consolidated maturities of long-term debt for 1997-2000 are $23 million, 
$22 million, $13 million and $30 million, respectively.

The 1996 maturities of long-term borrowings have been classified as current 
liabilities.

NOTE 8 - COMMITMENTS & CONTINGENCIES

CILCO's 1996 capital expenditures are estimated to be $49.3 million, in 
connection with which CILCO has normal and customary purchase commitments at 
December 31, 1995.

CILCO's policy is to act as a self-insurer for certain insurable risks 
resulting from employee health and life insurance programs.  

ESE expects to spend $8 million in 1996 to acquire land for remediation and 
resale.  Additional capital expenditures for 1996 are estimated to be 
$1 million, in connection with which ESE has normal and customary purchase 
commitments at December 31, 1995.

ESE's policy is to act as a self-insurer for certain insurable risks resulting 
from employee health programs and professional liability claims.

In August 1990, CILCO entered into a firm, wholesale power purchase agreement 
with Central Illinois Public Service Company (CIPS).  This agreement, which 
expires in 1998, provides for an initial purchase of 30 megawatts (MW) of 
capacity, increasing to 90 MW in 1997.  CILCO can increase purchases to a 
maximum of 100 MW during the contract period, provided CIPS then has the 
additional capacity available.  In November 1992, CILCO entered into a limited-
term power agreement to purchase 100 MW of CIPS' capacity from June 1998 
through May 2002.  

In March 1995, CILCO and CIPS renegotiated the November 1992 limited-term power 
agreement.  This agreement, which now expires in May 2009, provides for CILCO
to purchase 150 MW of CIPS@ capacity from June 1998 through May 2002, and 50 MW 
from June 2002 through May 2009.  This renegotiated agreement is subject to the 
ICC's final approval of CILCO's 1995 electric least cost energy plan, which has 
been revised to include the terms of this bulk power purchase agreement.  ICC 
approval is expected in June 1996.  

Reference is made to Management's Discussion and Analysis of Financial 
Condition and Results of Operations, Environmental Matters (regarding former 
gas manufacturing sites) for a discussion of that item.

NOTE 9 - RATE MATTERS

In December 1994, the ICC issued a rate order designed to grant CILCO a $10.6 
million, or 6.7% annual increase in gas base rate revenues.  The new rates, 
designed to yield an 11.82% return on common equity and a 9.24% return on rate 
base, were effective in December 1994.  

In mid-1992, after a significant number of leaks were detected in CILCO@s 
Springfield cast iron gas distribution system, CILCO began a detailed 
examination of its Springfield gas distribution system and related operating 
practices and procedures.  CILCO thereafter began an aggressive program to 
renew its Springfield gas cast iron main system.  This project was completed 
in November 1995.  

As a part of the rate order, the ICC disallowed approximately $7.5 million of 
CILCO@s $24 million investment in the Springfield cast iron main renewal 
project.  To reflect the disallowance, CILCO recorded a pre-tax charge of 
approximately $7.5 million ($4.5 million after tax) against 1994 earnings.

The ICC staff began an informal review of CILCO@s Springfield gas operations 
and record-keeping practices in September 1992.  Subsequently, the U.S. 
Department of Transportation (DOT) and the U.S. Department of Justice (DOJ) 
began conducting investigations of CILCO which were also focused principally 
on CILCO@s Springfield gas operations and its record-keeping practices.

In September 1994, CILCO entered into a federal court civil consent decree 
with the DOJ which concluded the DOT and DOJ investigations of CILCO.  As a 
part of the settlement with the DOJ, CILCO accepted adjustments recommended by 
the ICC staff which resulted in a net disallowance from CILCO@s gas rate base 
of approximately $4.5 million of the cost of the Springfield cast iron main 
renewal project.  This charge is part of the $7.5 million disallowance 
included in the December 1994 rate order.  In addition to the rate base 
disallowance, CILCO agreed to pay an $844,000 civil fine to the United States 
and agreed to reimburse the ICC, the DOT and the DOJ $156,000 for the costs of 
their investigations.  CILCO also agreed to underwrite the reasonable expense 
of an outside expert, selected by the ICC, to examine CILCO's gas operations 
manuals and systems to ensure they are in compliance with all applicable 
statutes and regulations.  The audit was completed in October 1995 at a total 
cost of $356,000.  

The DOJ agreed not to seek any additional civil or criminal penalties from 
CILCO or the Company.  The ICC staff also agreed not to seek any additional 
enforcement penalties from CILCO or the Company.  CILCO agreed to continue to 
cooperate with the DOJ in its investigation and prosecution of any individuals 
who may be responsible for willful violations of any applicable statute or 
regulation.

Reference is made to Management's Discussion and Analysis of Financial 
Condition and Results of Operations, Electric Competition and Environmental 
Matters for a discussion of other gas and electric rate matters.

NOTE 10 - LEASES

The Company and its subsidiaries lease certain equipment, buildings and other 
facilities under capital and operating leases.  Several of the operating 
leases provide that the Company pay taxes, maintenance and other occupancy 
costs applicable to these premises.  

Minimum future rental payments under non-cancellable capital and operating 
leases having remaining terms in excess of one year as of December 31, 1995, 
are $27.2 million in total.  Payments due during the years ending December 31, 
1996 through December 31, 2000, are $8.1 million, $6.4 million, $4.4 million, 
$3.5 million and $2.2 million, respectively.

NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following quarterly operating results are unaudited, but, in the opinion 
of management, include all adjustments (consisting of normal recurring 
accruals) necessary for a fair presentation of CILCORP Inc.'s operating 
results for the periods indicated.  The results of operations for each of the 
fiscal quarters are not necessarily comparable to, or indicative of, the 
results of an entire year due to the seasonal nature of the Company's business 
and other factors.

<TABLE>
<CAPTION>
For the Three Months Ended  March 31      June 30    September 30   December 31
                            (In thousands except per share amounts)  
<S>                            <C>          <C>           <C>          <C> 
1995                                                                           

Revenue                        $170,587     $132,490      $157,574     $154,089
Income before income taxes       18,833        8,890        32,031        2,102
Net income                       11,473        5,677        19,435        1,997
Earnings per average                                                           
  common share                     $.88         $.43         $1.47         $.15


1994
Revenue                        $177,436     $137,146      $145,854     $144,703

Income before income taxes       15,577       11,469        15,158        8,562
Net income                        9,701        6,940         9,570        6,375
Earnings per average                                                           
   common share                    $.75         $.53          $.73         $.49

</TABLE>